The economy continues to grow at a healthy
pace. However, the expansion remains concentrated in the mining sector,
which is propelled by the Antamina copper-zinc mine in southern Peru.
However, the rest of economy is only partially profiting from the buoyant
mining sector as the Toledo administration fails to provide an impetus to
growth. Meanwhile, sluggish domestic demand has sent the economy once again
into deflationary territory

June economic activity ahead of
expectations

In June, the economy grew by 3.6% compared to the same month last year,
well ahead of expectations. The June reading follows on an even stronger
4.5% growth rate reported for May (revised upward from 4.3% stated last
month). The June data were also inflated by seasonal factors. According to
seasonally adjusted data, the economy actually contracted by 2.1% in June
over May.

Mining
leads growth but comparison base effect soon to pass

As in the past, the country’s mining sector drove economic growth. Mining
continues to benefit from a favourable comparison base in the same month
last year when the Antamina copper-zinc mine in southern Peru was not yet
operating. Since the Antamina mine has developed into one of the country’s
largest mining facilities, it serves as a continuous catalyst to GDP
numbers. In June, this effect boosted activity in the sector by 21.6%. The
strong reading follows on a bout of weakness registered in May, when the
sector increased by “only” 14.0%, due to a strong drop in zinc and lead
output at the Cerro de Pasco mine. Nevertheless, the favourable comparison
effect in mining is finally drawing to an end. In fact, July numbers will
for the first time reflect the beginning of operations. However, the
downside effect will still be mild, as production at the Antamina mine was
not ramped up to full production levels until the end of last year.

Healthy
fishing spurs growth in primary manufacturing

The fishing sector mushroomed by 26.0% in June compared to the same month
last year, the second positive monthly reading after five consecutive
months of double-digit contractions. The positive performance was due to
favourable fishing conditions, which allowed anchovy fishing throughout
most of the month. The favourable fishing sector performance triggered a
healthy recovery in primary manufacturing, which had suffered negative
growth rates in the past five months due to lack of input. In June,
manufacturing based on raw materials increased at an annual rate of 4.5%.
In combination with non-primary manufacturing growth of 2.8%, this left
annual growth of overall manufacturing at 3.1% in the sixth month of the
year.

Construction picks up again but commercial activity slumps

Construction, returned to the double-digit expansion range (+10.3% year-on-year),
following three consecutive months of more moderate growth rates. Commerce,
on the hand, deteriorated notably and barely managed to remain in positive
territory (+0.2% yoy), following on 4.3% growth in the preceding month.
Finally, other services, which account for close to 40% of GDP, advanced
2.5%, also down from last month, when a 3.4% growth rate was reported.

Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Peru. For more details please click here.